October 22, 2021 - This Week at the Ninth

This Week at the Ninth: Schedules and Informants

This week, the Ninth Circuit explains the ins-and-outs of property abandonment under the Bankruptcy Code, and explores the government’s privilege to withhold the identity of informants in discovery.

IN RE STEVENS

The Court holds that 11 U.S.C. § 554(c), a provision of the Bankruptcy Code that allows property that has not be administered to be abandoned to the debtor if it has been “scheduled,” requires property to be disclosed on a literal schedule, and thus that, absent Trustee or court action property disclosed only on a statement (e.g., the Statement of Financial Affairs) cannot be abandoned under § 554(c).

The panel: Judges Ikuta, Bennett, and Nelson, with Judge Nelson writing the opinion.

Key highlight: “[G]iven the ordinary meaning of ‘scheduled’ and the statutory context, we must give ‘schedule’ and ‘scheduled’ similar meanings: scheduled means included on a schedule.”

Background: The Debtors filed for bankruptcy. At that time, they had a state lawsuit pending against their mortgage servicing company. Although they disclosed the state lawsuit in their Statement of Financial Affairs and discussed it with the bankruptcy trustee, they did not list it on their schedule of assets and liabilities under 11 U.S.C. § 521. The Trustee certified that the estate had been fully administered and the bankruptcy court closed the case. Later, as the Debtors continued litigating their state lawsuit, the mortgage servicing company contacted the bankruptcy Trustee directly to settle the matter. The bankruptcy court reopened the case and reappointed the Trustee, who took over the lawsuit and settled it. The bankruptcy court concluded that the state lawsuit had not been abandoned to the Debtors in the bankruptcy and thus the bankruptcy estate got the proceedings from the settlement, not the Debtors. The Bankruptcy Appellate Panel affirmed and the Debtors appealed again.

Result: The Ninth Circuit affirmed. The Court explained that absent circumstances not relevant here, in a bankruptcy, properly of the bankruptcy estate cannot be abandoned to the Debtors under 11 U.S.C. § 554(c) unless it is “scheduled” under 11 U.S.C. § 521(a)(1). Section 521(a)(1) mandates the debtors file multiple schedules, as well as several kinds of statements. Some courts have held that “scheduled” in § 554(c) refers specifically to the “schedule of assets and liabilities” under § 521(a)(1), whereas otherwise have held that any of the statutory filings under § 521(a) qualifies, whether it is called a schedule or something else. Applying ordinary principles of statutory interpretation, the Court concluded that to be abandoned under § 554(c), property must be scheduled on a schedule, not just listed on any filing. Although the Debtors’ failure to list the state lawsuit on a schedule may have been an inadvertent oversight, the court could not consider equitable arguments given the statute’s plain text.

MARTIN WALSH V. USDC-AZP

The Court holds that a district court did not clearly err in ordering the government to reveal the identities of informants who would be testifying at trial in advance of the parties’ summary judgment motions in a Fair Labor Standards Act (FLSA) case.

Panel: Judges Wallace, Schroeder, and Forrest, with Judge Wallace writing the opinion.

Key Highlight: “[I]t is not our role to re-balance the interests in place of the district court. The clear error standard requires us to determine, with firm conviction, whether the district court misinterpreted the law or clearly abused its discretion. The record shows that the district court did identify a need for Valley Wide to know the identities of informant witnesses by April 2, 2021, and carefully balanced the competing interests before making its decision.”

Background: The Secretary of Labor filed suit against Valley Wide Plastering Construction, Inc., and various individuals, alleging that they violated the FLSA. During discovery, Valley Wide sought the identities of informant employees who provided information to the Secretary. In response, the Secretary invoked the government’s informant privilege and asked the district court for a protective order. The district court issued the order, but also directed the Secretary to reveal the identities of informants testifying at trial by April 2, 2021, in time for the parties’ summary judgment motions. After reconsideration was denied, the Secretary sought mandamus, asking the Ninth Circuit to direct the district court not to order the Secretary to identify informant witnesses any earlier than 75 days before trial.

Result: The Ninth Circuit denied mandamus. The Court first laid out the Ninth Circuit’s five-factor test for mandamus relief: (1) whether the petitioner has alternative means for relief, or (2) will be damaged in a way not correctable on appeal; and (3) whether the district court’s order is clearly erroneous as a matter of law, (4) makes a frequently repeated error, or (5) raises new and important issues. Noting that that the third factor “is a necessary condition for granting a writ of mandamus,” the Court started and ended its analysis with clear error.

The government’s privilege to withhold the identity of informants “must give way,” the Court explained, “[w]here the disclosure of an informer’s identity, or of the contents of his communication, is relevant and helpful to the defense of an accused, or is essential to a fair determination of a cause.” While the party seeking disclosure has the burden of showing that its need for the information outweighs the government’s interest in nondisclosure, the “proper balancing of these competing interests” ultimately lies within the discretion of the district court.” The Ninth Circuit concluded that the district court properly balanced those interests here. It took into consideration Valley Wide’s need for the requested information before summary judgment motions were due, cited the correct legal standard, and assured the government that it had considered all the Secretary’s arguments. As the Ninth Circuit noted, the Secretary did not oppose disclosure itself, but only asked for later disclosure. Under those circumstances, the district court did not clearly err as a matter of law.